“As we have made clear in past reports, we would be in favor of much more fiscal consolidation than has occurred,” Chris Pryce, a director in Fitch’s Sovereign Group, told Reuters.
“We reduced the sovereign rating of Cyprus by three notches from AA- to A- at the end of May and it is possible, depending on what is happening in the next days and weeks, that we would reduce it further.”
Fitch last downgraded Cyprus on May 31, citing concerns over exposure of the island’s banks to Greek debt. It is on a negative outlook.
A munitions blast which destroyed the island’s largest power station on July 11 has thrown Cyprus into political and economic turmoil, with speculation mounting it may require an EU bailout if urgent action is not taken to address growing fiscal imbalances.
Standard and Poors and Moody’s downgraded the island last week.
“We are watching the situation with close interest,” Pryce said.
“We obviously hope to see a new government installed within a matter of days and will consider what rating will be considered appropriate for Cyprus in the future, when we see the government, the composition of the government and the policies it intends to pursue.”
Cypriot President Demetris Christofias asked his cabinet to tender their resignations last week, heeding calls from allies for a broad cabinet reshuffle. Earlier, opposition parties stormed out of a meeting on a fiscal consolidation package, accusing authorities of backtracking on cost cutting in the civil service after pressure from unions.
The government denied the accusation.
